When it comes to picking investment trusts, you can’t go wrong with the Standard Life UK Smaller Companies Trust (LSE: SLS). Run by investing superstar Harry Nimmo, the trust has produced a return of 124% for its investors over the past five years. Meanwhile, its net asset value has grown by 137% over this period, outperforming its benchmark, the UK Smaller Companies Index by 7%.
Nimmo and his team have a long record of picking out the market’s best small-caps and today, the portfolio is dominated by growth favourites NMC Health and Fevertreee Drinks. These two holdings comprise 9.5% of overall assets.
Some 5% of the overall portfolio is invested in the FTSE 100, 6% in the FTSE 250 and the remainder split between the Numis Smaller Companies index and AIM.
Proven record of success
Investing in small-caps can be a risky business, but Nimmo has been at the helm of the Standard Life trust since 2003, a testament to his investing prowess. However, despite his market-beating record, the trust currently trades at a discount to net asset value of around 2%. Considering the company’s historic investment performance, I would argue that it is worth paying a premium for the shares, so this slight discount seems too good to pass up.
Compared to other small-cap funds, the Standard Life offering isn’t too expensive either. Ongoing charges were around 1.1% of capital for the past 12 months.
The one downside is that the trust only offers a dividend yield of 1.4%, although with capital gains of 40% over the past 12 months it’s easy to overlook this lack of income.
Long term champion
The Montanaro UK Smaller Companies (LSE: MTU) trust has only returned 69% for its investors over the last five years, but if you’re looking for a cheap play on UK small-caps, this fund could be for you.
While the trust’s performance has disappointed over the past five years, over the long term Montanaro has smashed its benchmark with net asset value growth of 704% since launch, or 139% over the past decade. Over the same period, its benchmark (a blend of the FTSE SmallCap Index and NSCI Index) returned 435%.
What’s more, the trust’s last reported net asset value per share was 718p, so at today’s price of 574p, the shares are changing hands at a 20% discount to the underlying asset value.
At the end of September Montanaro’s largest holding was construction group Marshalls, followed by 4imprint and then Cineworld. Unlike Nimmo’s portfolio, Montanaro’s is more diversified. No position is larger than 3% of the total portfolio value, and the ongoing management charge is 0.8%.
As a long-term investment, it seems to me to be a great investment. Looking at the yawning gap between the firm’s share price and underlying net asset value, it feels as if the market does not understand the potential here, which presents an opportunity for those investors who can look past short-term headwinds.